In a statement, the moderate Reno Republican cited health reasons and slowing physical mobility for his resignation, effective Jan. 15, before the 2011 Legislature convenes.
"I had hoped to complete the remainder of my 10th elected term, but my physical mobility simply does not allow me to function fully, and therefore it is time for me to step aside for someone who can give the position a 100 percent effort," he said in a statement.
News of his retirement before what's expected to be a contentious legislative session was met with surprise and praise for the man Gov. Brian Sandoval called the "father figure" in the Legislature.
"If the state of Nevada had a Mount Rushmore for public servants, Bill Raggio's image would be etched on its face," said Sandoval, who said he spoke with Raggio, a law partner, after he made his announcement.
Raggio has had problems with his Achilles tendon in the left ankle.
"This was the right time and the right thing for me to do," Raggio told The Associated Press. "I'm pretty content. It's a decision I've thought about a long time.
"I'm trying to be low key, not make a fuss," he said.
His announcement sent shock waves across the political spectrum.
"Oh my God," said state Sen. Sheila Leslie, D-Reno. "It's just a tremendous loss to the state and Washoe County in particular."
With Nevada's population heavily concentrated around Las Vegas, Raggio has been a guard dog for northern interests, a protection that will be lost when lawmakers take up the redrawing of voting districts and tackle a budget shortfall projected to be between $1 billion and $3 billion.
His departure means all four senators from Washoe County will be freshman in the upper chamber, though Leslie and Don Gustavson, R-Sparks, served previously in the Assembly.
"We've lost our leader," Leslie said. "It's a scary feeling."
Raggio, 84, was first elected to the Senate in 1972, and served as the Republican caucus leader for 28 years before he stepped aside in November after Sen. Mike McGinness, R-Fallon, launched a challenge to his leadership.
"Not only Washoe County and northern Nevada, the entire state's going to miss him," McGinness said.
"I want to wish him the best. I hope he has an opportunity to enjoy himself and go someplace warm for the winter."
Before joining the Senate, he served 12 years as Washoe County district attorney, and six years before that has an assistant DA.
The 2011 Legislature convenes Feb. 7, and the Washoe County Commission will appoint a replacement.
Raggio said he hopes commissioners will appoint someone who shares his political values "and who will commit to working with others and across party lines to do what is in the best interests of our communities and our state."
Senate Majority Leader Steven Horsford, D-North Las Vegas, urged the county commission to honor the qualities Raggio mentioned, adding that Raggio's "commitment to education and his depth of experience will be greatly missed in the 2011 legislative session."
Raggio in recent years has been increasingly vocal against the hard-line, no-tax stance of the conservative right. His support of Democratic Sen. Harry Reid over Republican tea party favorite Sharron Angle in Nevada's U.S. Senate race angered the more conservative segment of the party and led to the challenge for his leadership post.
Reid said Nevada will lose a "true leader" with Raggio's retirement.
"Respected by both Democrats and Republicans alike, Sen. Raggio has always been a fierce advocate for Nevada and his constituents throughout his long career in the Nevada State Senate," Reid said. "I thank him for the support he offered me over the years and for his work on behalf of our state. Bill is a true statesman and his voice will be sorely missed."